After four years of disastrously wrong policies, let's declare stubborn, hubris-soaked wrongheadedness a virtue and saint Ben Bernanke and his Federal Reserve mates. If we had to distill down the Fed Chairman and the Federal Reserve's policies since the wheels came off the Fed's "shadow banking" system of fraud, collusion, embezzlement and free-floating leverage, we'd have to start with a systems-analysis perspective.

Any system which separates risk from results (gain/loss) is doomed to implode, as the lack of feedback from the real world (also known as consequences) enables the self-reinforcing feedback known as "moral hazard": losses by those who took the risk to reap a gain are made good by those who did not take the risk and who do not stand to gain from the risk they are covering.

In this case, the mortgage origination and packaging "industry" and the investment banks' origination and marketing of fraudulent-from-inception derivatives "industry" took the risks to reap outsized gains from the financialization of mortgages and other debt instruments via leverage, commodifying debt and arcane derivatives, all of which were sold as "low-risk."

Capitalism's primary characteristic is that capital is put at risk for a gain/loss. If risk is off-loaded onto the Fed's bottomless balance sheet and the taxpayer via government-funded bailouts and guarantees, then capital is not actually at risk. Thus what we have isn't capitalism, but cartel crony-capitalism, a phony version of the real thing which guarantees private banking profits and socializes banking losses.

The Fed was recently revealed as having arranged billions in private gain via secretly backstopping the banks with $7.7 trillion. This highlights Bernanke and his buds' second catastrophically wrong policy, that of systemic opacity.

The acme of open markets is transparency. Without transparency, markets are not free or open, they are manipulated-- both to hide those who are benefitting from the destruction of transparency (monopolies, cartels, fiefdoms, kleptocracies, oligarchies, etc.) and to manipulate the market as part of a permanent propaganda campaign to "manage perceptions:" the market's up, everything's dandy.

Bernanke and his faithful banking-sector lackeys have destroyed transparency at every turn, refusing an audit (an audit smacks of--sniff--democracy--how distasteful), masking the $7.7 trillion in backstopping, and hiding the toxicity of the Fed balance sheet, which is loaded with over $1 trillion in distressed mortgage securities that the Fed lovingly took off the bankrupt balance sheets of its craven masters, the banks.

In other words, the Fed has massively rewarded the reckless and rescued the incompetent from the consequences of their actions. If that isn't the perfection of wrongheadedness, what is?

Then there's the disastrously destructive ZIRP--zero interest rate policy. The Fed's idea here is childishly simple, and childishly ignorant: if we lower interest rates to zero, then everyone who is over-leveraged and over-indebted will be able to borrow more, but for less interest, and that will buy the system time to magically heal itself.

The Fed cannot dare grasp that "healing" in capitalism means writing off uncollectable debt and sending insolvent lenders and debtors to bankruptcy court. Capitalism would quickly dispense with their cronies in the banking sector, and so capitalism must be destroyed. That is the Fed's raison-d'etre: destroying capitalism from within. Lenin would be envious.

ZIRP has myriad pernicious consequences. Let's say you have some capital that you want to apply such that it earns a fair return. If interest rates are near-zero, then a fair return has been rendered impossible by Fed policy.

The Fed leaves you only two choices: either put your capital into "risk-on" assets that are inherently risk-laden, or loan the capital out at low rates in an opaque market and hope you'll actually get the principal back.

Imagine being in charge of issuing mortgages which weren't guaranteed by the Federal government agencies of Fannie Mae, Freddie Mac and FHA--that is, imagine you actually lived and worked in a capitalist system, instead of a kleptocratic crony-capital haven.

You might hesitate to loan out large sums of money (jumbo mortgages) in a market where the risk of a decline in the asset (real estate) is obvious but official manipulation means you can only receive a very paltry return on the capital you're putting at risk.

Since the market isn't able to price real estate, risk or credit transparently, then prudent investors would be forced to shun the market: how can you invest wisely when assets, debt and risk can't be priced by the market?

Prudent lenders would withdraw from such a rigged, risky market, which is precisely what has happened. Literally 99% of the mortgage market is now guaranteed by the Federal fiefdoms, all of which are losing tens of billions of dollars and require monumental taxpayer bailouts to keep underwriting the banking sectors' private profits.

Private mortgage lending has simply vanished, and no wonder: if you can't price assets, risk or debt, then only the reckless would enter the market, and even they would only do so if the Fed guaranteed the profits would be theirs to keep but losses could be transferred to the Fed or taxpayers.

The only way to restore trust and clear the market of uncollectable debt is to let the market transparently price, risk and credit--precisely what the Fed's policies are designed to stop. The Fed's knees are chafed from kow-towing to their banker masters, and worshipping the "magic" of their Keynesian Cargo Cult and Lenin ("destroying capitalism from within" should be stenciled on the Fed letterhead).

Separate risk from gain, obliterate transparency and choke the market with zero interest rates, and you've not only destroyed capitalism, you've also destroyed the economy by rewarding the most venal, corrupt, fraudulent and capital-destroying players while stranding the prudent on an island of opacity where the true price of assets, credit and risk cannot be discovered.

After four years of perfect policies, let's declare stubborn, hubris-soaked singlemindedness a virtue and saint Ben Bernanke and his Federal Reserve mates. If we had to distill down the Fed Chairman and the Federal Reserve's policies since the wheels came off the Fed's "shadow banking" system of fraud, collusion, embezzlement and free-floating leverage, we'd have to start with a systems-analysis perspective.

Any system which separates risk from results (gain/loss) is doomed to implode, as the lack of feedback from the real world (also known as consequences) enables the self-reinforcing feedback known as "moral hazard": losses by those who took the risk to reap a gain are made good by those who did not take the risk and who do not stand to gain from the risk they are covering. Benny has done a masterful job of exploiting this factor.

In this case, the mortgage origination and packaging "industry" and the investment banks' origination and marketing of fraudulent-from-inception derivatives "industry" took the risks to reap outsized gains from the financialization of mortgages and other debt instruments via leverage, commodifying debt and arcane derivatives, all of which were sold as "low-risk." How cool was that!! Pure genius.

Capitalism's primary characteristic is that capital is put at risk for a gain/loss. If risk is off-loaded onto the Fed's bottomless balance sheet and the taxpayer via government-funded bailouts and guarantees, then capital is not actually at risk. Thus what we have isn't capitalism, but cartel crony-capitalism, a phony version of the real thing which guarantees private banking profits and socializes banking losses.

The Fed was recently revealed as having arranged billions in private gain via secretly backstopping the banks with $7.7 trillion. This highlights Bernanke and his buds' second wonderfully on-target policy, that of systemic opacity.

The acme of open markets is transparency. Who needs that shit? Without transparency, markets are not free or open, they are manipulated-- both to hide those who are benefitting from the destruction of transparency (monopolies, cartels, fiefdoms, kleptocracies, oligarchies, etc.) and to manipulate the market as part of a permanent propaganda campaign to "manage perceptions:" the market's up, everything's dandy.

Bernanke and his faithful banking-sector lackeys have destroyed transparency at every turn, refusing an audit (an audit smacks of--sniff--democracy--how distasteful), masking the $7.7 trillion in backstopping, and hiding the toxicity of the Fed balance sheet, which is loaded with over $1 trillion in distressed mortgage securities that the Fed lovingly took off the bankrupt balance sheets of its craven masters, the banks.

In other words, the Fed has massively rewarded the reckless and rescued the incompetent from the consequences of their actions. If that isn't perfection, what is?

Then there's the beautifully destructive ZIRP--zero interest rate policy. The Fed's idea here is childishly simple, and a childishly brilliant scam: if we lower interest rates to zero, then everyone who is over-leveraged and over-indebted will be able to borrow more, but for less interest, and that will buy the system time to magically heal itself.

The Fed cleverly avoided the concept that "healing" in capitalism means writing off uncollectable debt and sending insolvent lenders and debtors to bankruptcy court. Otherwise, capitalism would quickly dispense with their cronies in the banking sector, and so capitalism must be destroyed. That is the Fed's raison-d'etre: destroying capitalism from within. Lenin would be envious.

ZIRP has myriad pernicious consequences. Let's say you have some capital that you want to apply such that it earns a fair return. If interest rates are near-zero, then a fair return has been rendered impossible by Fed policy. Brilliant!

The Fed's fucke up policies go back much much further than 4 years. Arguably one could say the die was cast in 1913.

Bernanke, the insane bastard that he is, is still just mopping up Greenspan's mess. and doing a piss poor job if I do say so.

The IMF and the governmental polices that enabled globalization and global securitization were like acid that ate away the foundations of our economies. A fart at the wrong moment could collapse this framework of farce.

A real learning moment as the educator drones like to repeat as their mantra whenever a massive fuck up occurs.

Professor Anthony Sanders, aka Snakeeyes, as “previous Director of asset-backed and mortgage-backed securities research at Deutsche Bank and the co-author of 'Securitization' (along with Andrew Davidson) as well as many economic and finance publications,” thank you for taking the time to post here prior to your testimony.

In your opening you point out: “The Eurozone is teetering on collapse and it has been decades in the making. The cause of their problems is 1) excessive government spending leading to 2) excessive government debt coupled with 3) slow GDP growth…”

Yet: “And yesterday, Fed Chair Bernanke announced that The Fed stands ready to provide further easing based on Eurozone risk. Since The Fed can’t really push down rates much further, The Fed must be contemplating expanding The Fed’s balance sheet to provide additional liquidity and marginally lowering interest rates. Retirees and people living on fixed incomes will be further harmed by The Fed’s reaction to the Eurocrisis.”

I agree that “The Fed and Treasury should save their bailout tools for the U.S. The GDP boost from additional Federal borrowing is almost zero (see Figure 10). The M1 Money multiplier continues to fall (see Figure 11). When we plot these Federal government intervention measures together (see Figure 10), it shows that intervention has lost effectiveness.

“On The Fed side, it is clear that guarantees to the Eurozone could be problematic to U.S. taxpayers. And the swaps with Europe could be costly as well. But since there is little transparency on The Fed’s discount window and guarantees, it is difficult to measure taxpayer risk exposure…”

As you say: “The Eurozone’s structural problems cannot be solved by low interest loans and guarantees from The Fed and the IMF. In fact, engaging in a bailout of the Eurozone could jeopardize U.S. taxpayers.

“The best way to protect U.S. taxpayers is to increase transparency at The Fed, take back the $100 billion line of credit at the IMF and undertake spending cuts ourselves in order to reduce our deficit and massive debt loan.”

I hope that the United States House Committee on Oversight and Government Reform Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programswill listen.

GE used to make a top knotch waffle maker back in the 1960s, maybe they could get back into the appliance market to replace all this chinese junk that burns up in 3 years after it poisons you with toxic materials.

Jack Welch, long may he rest in peace, he's already dug GE's grave, now its just up to current management to heave the corpse into the hole.

"Separate risk from gain, obliterate transparency and choke the market with zero interest rates, and you've not only destroyed capitalism, you've also destroyed the economy by rewarding the most venal, corrupt, fraudulent and capital-destroying players while stranding the prudent on an island of opacity where..."

i don't think bernanke or his fed mates thinks he was even a little bit wrong. they and their buds have been rewarded, no?

Well written and directed rant- which of course will signify nothing to our corrupt market and government. Gawd, just take a 12 gauge to the bunch of them and let us at least start to try and fix this shit pile. Milestones

powerful words...If the extent of damage is as CHS says it is : we will take more than a decade to mend :

a) the financial damage, which will not die without social pressure from below as these Oligarchs are POWER.

b) the psychological mind set, which will take a generation not a decade. America has to let this ponzi fall and hope the essential, human will to survive and to revive by resurrecting basic principles of the republic, will start the slow climb back.

Nice article, but it misses the point. Here is the point: All these machinations, like Bernanke's personal Fed Reserve System, the MFG-Corzine-paper metals shell game, Lehman Bros & Bailout, Inc., plus the European mess are just symptoms of MASSIVE Govt fraud and the contortions the power brokers have to go thru to keep the plates spinning. They are buying time until the bunkers are full of food, and then 2012 will be upon us. We should all be asking WTF do they know that we don't, i.e., what is coming at us that we can't see, and I'm not talking about a financial crash. "They" have absolutely proven they can fake their way thru just about anything. It will continue until "they" decide to run for the tunnels and slam the blast doors shut.

Looks like you already might know something about cat food. My crystal ball says that knowing about cat food is a good thing. However, it won't tell me whether malt liquor or Mad Dog 20/20 pairs best with Fancy Feast.

Bernanke is right: the US economy grows, apparently all the panic was idle. Folks are running for credit, government too and so the "crisis" disappears. Bye bye crisis, collapse, meltdown, Armageddon, civil war. Boring world we live in.

Charles Hugh Smith: the 21st Century Thomas Paine; the 21st Century Henry Hazlitt.

What’s happening, the trillions in money given to the banks are not earmarked for lending to the American public; instead of lending it out to small businessmen and home buyers, the insolvent investment bankers are using it as leverage to buy up assets of big corporations and sovereigns. Since people buying homes have nothing big to offer them such as a piece of a corporation, they’re not interested. They’d rather loan money to national chains or Greece…. And when a national or a sovereign doesn’t make good, the Congress shifts the risk to the taxpayer.

The two things flourishing in this recession are the chain stores and the stock market. Where are they getting the money? They don’t get it from the Fed; they get it from the big banks. And the big banks get something in return, don’t they? They’re getting pieces of those companies…

R.E. McMaster wrote in The Reaper:

“The goal of international communism (NWO socialism) is not to destroy Western international debt capitalism. The goal of international communism is to enslave mankind at the behest of Western international debt capitalism.”

This train wreck has been going on for a while and still the main stream media made as their Time magazine person of the year in 2009 none other than Ben Bernanke. The collapse continues and it shows you how disconnected the media is from the truth.

i was rigging up a panful of mashed potatoes (yeah!) ...water...halfNhalf...a few drops of lemon...some crumbled gorgonzola...when i accidently squeezed the hungryJack box at the wrong time, place, and angle, creating a small snowstorm of dessicated potato flakes, which was actually pretty cool...

Exactly correct - the relationship between risk and interest rates has been destroyed. High risk should equal high rate and the inverse relationship low risk equals low rate should hold true. The whole fashion to "control inflation" or "inflation rate targeting" by central banks without any theoretical basis whatsoever for what an appropriate target rate of inflation for an economy might be is the historical economics fashion trend...the ignorant leading the blind.

Who do low "inflation rates" protect or sustain?

-->Wealthy savers whose banked capital is not producing anything.

-->Governments who can issue debt at artificially low coupon rates making their debt appear more 'sustainable.'

-->Governments who can isssue sham inflation bonds with even lower 'real' coupons ripping off investors in such under the guise of 'inflation protection.'

-->Economists' careers who then have another pseudo rational for their pseudo science which has the benefit it sounds good intuitively without a spot of of empirical support.

Zero rates lead nowhere but to deflation caused by capital becoming unwilling to lend or invest since the spread versus the risk makes lending or investment foolhardy; even production comes to a halt, because there is simply no worthwhile return on investment.

The low rates do not get passed on to consumers as banks pass them on to retail clients, they keep their spread on credit cards by not lowering the retail credit card rates.

Complete economic ignorance prevails ultimately in no one's interest as the world economy will collapse as the consequence.

It’s not the government’s money; it is not a question of paying people to produce. It’s a question of letting the market set the rate for borrowing. The problem is the Congressional guarantee with taxpayer money for the losses of international investment bankers who take high risk and lose.

And when inflation finally takes all the savers’ money and they are not “producing” anything, maybe they can be signed up for government work gangs to produce something.

In the Rothschild tradition, the Bernanke Gang runs the wealth transfer business, very well. The central bank gets title to everything, and the people get mountains of worthless paper. We just say no to fraud, but we continue using the currency of debt slavery. It ends when the currency collapses and the people are living in the street, or worse.

Ok, time for a WTF. "Choke the market with zero interest rates" I really don't quite follow that. What we're talking about here is raising interest rates (to reflect "correct" levels of risk) to force even more massive defaults and foreclosures. But, lowing the book values of the MBS remaining on Bank balance sheets would likely mean "bye bye banky" - and basically Armageddon. Maybe ZIRP ain't so bad poor the time being? If we're going shut down all the ATMs, I'd rather it be when there is no other Alternative.

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